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Novo Nordisk Posts Solid 4Q - Analyst Blog

Novo Nordisk
(
NVO
) reported earnings of $1.51 per American Depository Receipt (ADR),
in the fourth quarter 2011, much above the Zacks Consensus Estimate
of $1.24. Earnings were also ahead of the prior-year earnings of
$1.35 per ADR. The earnings outperformance was driven by robust
top-line growth in the quarter.

Total revenues were up 12% (in local currencies) over the
prior-year period in the fourth quarter. The top-line growth was
driven primarily by strong performance of diabetes drug Victoza,
modern insulins and haemophilia drug NovoSeven.

In the full year 2011 adjusted earnings were $5.61 per ADR
versus $4.39 per ADR in the comparable period last year.

Full Year Numbers

Total revenue grew 11% (in local currencies) over the prior-year
period, as strong sales of modern insulins (up 11%) and Victoza (up
166%) offset weakness in human insulins. Health care reforms in the
US, several European markets, China and Turkey pulled down revenues
by approximately 2.0 percentage points in the reported quarter.

The Diabetes Care segment recorded a growth of 13% in local
currencies as strong revenue from modern insulins was partly offset
by weakness in human insulins, particularly in Europe, US and
Japan. Novo Nordisk's most important drug, Victoza, for the
treatment of type II diabetes did well worldwide in 2011. Victoza
has had a significant head start contributing 55% to the overall
local currency growth. We note that Victoza will face intense
competition once
Amylin Pharmaceuticals, Inc
./
Alkermes plc
's (
AMLN
/
ALKS
) Bydureon hits the US market. The drug received US approval last
month.

The Biopharmaceuticals segment recorded a local currency growth
of 8% driven by a 7% jump in NovoSeven sales.

Pipeline Update

The US Food & Drug Administration (FDA) is expected to
deliver its decision on approvability of Novo Nordisk's much
anticipated pipeline candidates, Degludec and DegludecPlus, on July
29, 2012. Degludec and DegludecPlus are next-generation insulin
analogues for the treatment of type I and type II diabetes.
Degludec is an ultra long-acting basal insulin while DegludecPlus
is a fixed ratio combination of Degludec and NovoRapid. The
candidates are also under review in the European Union (
EU
), Switzerland and Canada. Novo Nordisk has also filed Degludec in
Japan.

As regards its biopharmaceuticals pipeline, Novo Nordisk
received a complete response letter (
CRL
) from the FDA for its recombinant factor XIII (rFXIII) for need of
additional data. The candidate has been studied for the treatment
of congenital FXIII deficiency.

2012 Guidance

Novo Nordisk increased its sales growth guidance for 2012 to
7%-11% in local currencies, up from the preliminary guidance of
high single-digit growth. The guidance includes the impact of
potential generic competition to NovoNorm/Prandin and estimated
headwinds from health care reform in the US and Europe. Reported
sales are estimated to grow in the range of 11%-15%.

In local currencies, guidance for operating profit growth is
expected to be around 10% (prior guidance: close to 10%). Reported
operating profit growth is estimated to be roughly 17%. The
operating profit guidance includes the potential costs for the
launch of Degludec and DegludecPlus. The effective tax rate is
pegged in the range of 22%-23%.

Our Recommendation

We have a Neutral recommendation on Novo Nordisk. The stock
carries a Zacks #3 Rank ("Hold" rating) in the short term.

So far we are impressed by the performance of Victoza which is
doing well both in the US and Europe. Moreover, we believe that the
next-generation insulin analogues, Degludec and DegludecPlus, hold
significant potential for long-term growth at Novo Nordisk. Though
we are encouraged by data from the Degludec trials, we prefer to
remain on the sidelines until Degludec and DegludecPlus gain
approval.

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